Are you thinking of how to cover a mortgage on a property after your death?
We know that buying a home is a long and hard process because of the requirement to prove your ability to cover the mortgage after death. For many, the solution is to get a joint tenancy with the right of survivorship loan.
This is legal for married couples or for two people who need to work together. Yet, did you know there are tax consequences with this type of loan?
Read on to learn more about the tax consequences of joint tenancy with right of survivorship.
Read along to learn more!
Table of Contents
Capital Gains
In a joint tenancy with the right of survivorship, two or more persons own a share of the property. If one of the co-owners sells their share in the property, they must pay capital gains tax on the profits they made from the sale. Capital gains taxes are essentially taxes on profits from the sale of an asset, like a property.
Depending on the tax rate, the amount of capital gains taxes will differ but are always a percentage of the profits made from the sale. Essentially, the more money made from the sale of the property, the higher the tax amount due.
Property Taxes
This means that the taxes owed on the property remain with the original owners. In a joint tenancy in California, the surviving tenant is liable for the taxes that are due on the property. This is because all the tenants are considered to have a vested right in the property, so the surviving tenants must pay the full amount owed to the government.
This does not change if one of the original tenants dies; the surviving tenants must still pay the property taxes. Thus, property taxes are a tax consequence of joint ownership with the right of survivorship.
Gift Tax
This means the survivor inherits the assets without having to pay a gift tax. Yet, if the survivor gives away any of the assets under the right of survivorship tax rules, they must pay a gift tax.
This is because the asset was not inherited, but rather was given to the survivor for free. In other words, the survivor has created a taxable gift to another individual, and must therefore pay the gift tax.
Estate Tax
When one of the parties dies, the deceased’s share of the property passes automatically to the surviving tenant without being subject to Probate. The portion of the deceased’s share received by the surviving tenant is part of his or her estate and is therefore subject to federal estate tax. As a result, the value of the property owned jointly with the right of survivorship may be subject to estate tax due upon the death of one of the parties.
Learn the Tax Consequences of Joint Tenancy With Right of Survivorship Today
The tax consequences of joint tenancy with right of survivorship should always be discussed before making the decision to add a joint tenant. It may help to speak with a tax professional to review options and ensure a sound decision. Make sure to consider all the risks before adding a joint tenant to your assets!
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